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Internet Payday Lending Alert

The California Department of Corporations has issued a warning about a new trend in payday lending. The department says payday lenders are moving from storefronts to the Internet, which means they can attempt to skip licensing with the Department of Corporations and evade state laws and regulations designed to protect consumers.

Pew Charitable Trusts did a study recently that found payday loans are less likely to be used to cover emergency costs.

According to the study, 69 percent of payday loan borrowers used the loan to cover a recurring expense, such as utilities, credit card bills, rent or mortgage payments, or food. Only 16 percent used the loan to cover an unexpected expense, such as a car repair or emergency medical expense.

Nick Bourke, the project director of Pew Charitable Trust's Safe Small-Dollar Loans Research Project, said those findings dispute the stereotype of loans' uses.

"Payday loans are usually packaged as products that people need for emergencies and for short periods of time, the reality is quite different," he said.

Miro Copic, a professor in San Diego State University's School of Business Administration, said payday lenders target the underemployed and unemployed, who are more likely to be optimistic and hope the loan will be a bridge to a future employment opportunity.

Copic said the loans also do not help the economy because people tend to spend the money on necessities, not bigger items like clothes, back-to-school items or appliances.

The study also found that 12 percent of people who are disabled have used payday loans. Copic said there is nothing illegal about borrowing against government disability checks, and that people sometimes end up taking out loans because disability payments are not enough to live on.

According to Center for Responsible Lending, California payday borrowers lose more than $450 million a year just to pay the fees on payday loans, which have interest rates of 459 percent.

I can't believe that around 70 percent of payday loan users spend them for food and to pay credit card bills. Just the fact that it is easy to get a loan with same day approval never made me go run for it. I am among those 30 percent who use payday loans for emergencies.